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Why Coty Inc. Stock Was Falling Today

By Jeremy Bowman – Updated Aug 21, 2018 at 1:12PM

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Shares of the cosmetics company dipped on weak guidance for the upcoming year.

What happened

Shares of Coty Inc. (COTY -1.64%) were dropping today after the beauty specialist posted underwhelming sales numbers in its fourth-quarter earnings report and offered weak guidance for the current fiscal year.

As a result, the stock was down 10.9% as of 11:32 a.m. EDT.

Close-up of a woman putting on red lipstick

Image source: Getty Images.

So what 

Coty, the parent of brands like CoverGirl and Max Factor, said organic revenue, which strips out the impact of acquisitions and currency fluctuations, ticked up 0.3% in the quarter, and overall revenue increased 3% to $2.3 billion, though that was short of estimates at $2.32 billion.

Organic sales in its luxury segment were particularly strong, rising 5.3%, but the company pointed to challenges due to a Brazilian trucker strike and the consolidation of warehouses and planning centers following its acquisition of several brands from Procter & Gamble. That weighed on the consumer segment, where organic sales fell 3.4%.

Adjusted operating margin expanded 600 basis points to 10%, in line with expectations, as the company continue to integrate assets from the merger, and adjusted earnings per share improved from breakeven to $0.14, beating expectations by a penny.

CEO Camillo Kane said, "Coty made good progress in fiscal year 2018 although much remains to be done. We delivered our target of modest like-for-like net revenue growth and, importantly, a very healthy improvement in adjusted operating margin in the second half of the year."

Now what

Looking ahead to the current fiscal year, Coty expects flat to modest organic revenue growth, while analysts predicted flat revenue growth, and the company also forecasts adjusted earnings per share of $0.74-$0.78, up from $0.69 last year. That guidance was worse than expectations at $0.82, however.

Given that the guidance, today's sell-off is understandable, but management blamed the slower-than-expected growth mostly on supply chain disruptions that will hamper first-quarter performance, a sign that the challenges are just temporary. The turnaround is moving forward, following the merger, and the stock looks cheap after today's pullback and its slide earlier this year, with a forward P/E of less than 15. This could be a buying opportunity for patient investors.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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